Image: Federalreserve, Public domain, via Wikimedia Commons
In a wide-ranging discussion on the effects of Trump tariffs (we’ll wait and see) to mortgage rate cuts (we’ll wait and see) Federal Reserve Chairman Jerome Powell has warned that obtaining mortgages in certain parts of the United States may become nearly impossible in the future due to mounting challenges in the insurance sector.
Speaking during his semi-annual testimony before Congress, Powell addressed the growing issue of insurers withdrawing from regions at high risk for natural disasters. “If you fast-forward 10 or 15 years, there are going to be regions of the country where you can’t get a mortgage,” Powell said, explaining that financial institutions and insurance providers are increasingly avoiding areas prone to wildfires, hurricanes, and other environmental threats.
The ongoing instability in the insurance industry stems largely from the escalating frequency and severity of climate-related disasters, which have led to substantial financial losses for insurers. Major companies, including State Farm, have already canceled thousands of policies in high-risk zones. This trend has left many homeowners with limited options, forcing them to rely on state-backed insurance programs. These last-resort insurers often come with significantly higher premiums and provide more limited coverage compared to private alternatives.
Mortgage lenders generally require homeowners to carry insurance as a condition of their loans. With fewer insurers willing to underwrite policies in disaster-prone areas, homebuyers face greater difficulties in securing financing. Powell emphasized that banks and insurers will not continue providing loans and policies if the risk is deemed unsustainable.
Minnesota Sen. Tina Smith raised concerns over the impact of this trend, prompting Powell to acknowledge that while interest rate adjustments may provide some relief for homebuyers in the future, broader housing affordability issues are largely driven by supply shortages—a challenge outside the Federal Reserve’s jurisdiction.
“There’s a short-term problem that will go away in the coming years, but there’s a longer-term problem with housing affordability, and that’s going to be something that’s not within our authorities or powers to affect,” Powell responded to a question from Sen. Ruben Gallego.
He further noted that even if interest rates decline, it is uncertain whether this would alleviate housing inflation. “It would unlock people’s low mortgages, but that creates both a buyer and a seller,” he explained. “It’s not clear that that would be something that would drive down housing inflation.”
Regarding Fannie Mae and Freddie Mac, Powell acknowledged the role government backing plays in keeping mortgage rates lower. However, he suggested that Congress would need to decide the long-term future of these mortgage giants, stating, “Putting housing finance back in the private sector has some appeal over the longer run.”
As insurers continue to retreat from high-risk areas, homeowners and prospective buyers may find themselves grappling with a tightening market where both insurance and mortgage availability become increasingly scarce. The financial landscape for housing remains uncertain, with affordability and accessibility facing mounting pressure from both climate-related risks and economic factors.
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